The annual results for global shipping giant Maersk signal a severe set back to the company’s strategy in container shipping. Although the wider A.P. Moller Group had higher overall profits at US$6.048bn, the Maersk container shipping division, which is the group’s largest business, suffered a loss.

Revenue for 2006 was up strongly, at $2.065bn from $1.504bn, reflecting the acquisition in late 2005 of P&O Nedlloyd. Profit before Tax was a loss of $267m compared to a profit last year of $1.524bn. However profit before financial items – largely the purchase of P&O Nedlloyd – was $744m, more in keeping with market trends.

Whilst softer container rates and higher fuel prices have depressed income and margins, the real problems at Maersk seem internal. Maersk reports it is having problems with its operational IT systems and at present “involves a good deal of manual effort on our part until systems and processes are fully trimmed and optimised”. Whilst such problems are hardly unusual, it is uncommon for such a large company’s bottom line to be affected so directly.

Even more serious is that its strategy of expansion by acquisition seems to have failed in the short run. Maersk states that the container volume handled by Maersk in 2006 was equal to the combined volumes of P&O Nedlloyd and Maersk in 2005. This is despite an expansion of the container market in 2006 meaning that Maersk has lost market share, undermining its rationale for the takeover of the company in the first place. Indeed unit costs have increased due to Maersk investing in new capacity to respond to an increase in volume that never happened.

The question is why has this happened? The container market has been growing globally, often in double figures, yet it appears that a number of P&O Nedlloyd’s customers left after the Maersk take-over. This is puzzling and potentially serious. It calls into question both the strategic and operational effectiveness of buying market share through acquisition. It also suggests that despite its major market presence Maersk is like all of its smaller rivals, under constant pressure to maintain its market share.

Source: Transport Intelligence

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